Earnings Week
Earnings this week will most likely be the key to whether or not we can sustain the rally we saw Friday. This morning, S&Ps were trading up 200 points at 1387.50. European markets were trading steadily.
For today in the S&Ps, we have a key resistance area essentially from 1390.50 all the way to 1398.50. We expect a volatile, choppy trade in this area. If we get above it, the target is 1409. We have a resistance zone between 1407.50 and 1410. If the market were able to take this out, 1425 looks viable.
On the downside, support is seen between 1383 and 1380. If we get below 1380, we would expect the market to try to pull back toward the 1365-level. Along the way, 1375 to 1374 is support. Below this, the support zone between 1366 to 1362.50 comes in.
One general comment: Typical action following a rally like the one we saw Friday is selling in the first hour. The most bullish scenario for today is a low made in the first hour of trading, followed by a steady rally throughout the rest of the session. The most bearish scenario would be a high made in the first hour followed selling throughout the session.
The key factor here, again, is earnings season, and there is one fact: All of the extremely negative news is out. In other words, the pre-announcement period has essentially ended.
What this means is we should begin to see similar reports to the ones on Friday when GTW, JNPR and PMCS all beat estimates, helping to provide support to the rally. Also, on Friday the Volatility Index (VIX) on the CBOE hit a six-month high at 36.74. This normally is used as a contrary indicator, which would mean we may have seen a bottom. The Morning Pivotal area is 1386 to 1384.50.
NASDAQ was trading up 20 handles at 3295. Second greatest percentage rally on Friday, moving up nearly 8%. Now, the question is can we hang on? The hallmark of this decline is that the market has been unable to build on rallies. This week should be very pivotal for the rest of the year.
On Friday, we said that a short-covering rally could take us to 3300. Our high was 3310. We are expecting much in the way of volatility today in the trade, and certainly we are looking for some type of retracement before the market makes up its mind as to its next move.
On the upside, we see resistance between 3305 and 3315. If we get above that, look for 3350. Along the way, we have resistance between 3345 and 3360. Above 3360, look for 3430, with 3395 to 3405 as resistance. Support is between 3275 and 3258. If the market breaks this zone, expect a move down to 3200.
We have support between 3210 and 3195. Only a trade below 3150 will begin to put Friday’s move into question — especially if we were to see that trade in the final hour. Any settlement below 3150 should be construed as negative.
While every market took off Friday, the Dow was able to give back half its loss from Thurday. This will be critical moving forward. The market needs to get above 10,400 to be out of short-term trouble.